Commercial Real Estate Market Outlook

Real Capital Analytics (“RCA”) recorded $111 billion of transactions in the first quarter of 2016, 20% lower than the first quarter of 2015 primarily due to fewer portfolio sales. According to CBRE Econometric Advisors (“CBRE-EA”), vacancy rates for the industrial property sector showed improvement during the first quarter, retail vacancy was unchanged, and multifamily and office recorded small increases in vacancy rates. 

Multifamily – At the end of the first quarter of 2016, the national vacancy rate for multifamily properties was 4.7%, up 10 bp from the prior quarter though unchanged from the vacancy rate of one year ago. Eight out of the 62 markets tracked by CBRE-EA recorded vacancy rates below 4%, including New York and Los Angeles. 

First quarter 2016 sale volume for multifamily properties totaled $38.6 billion, up 12% from the same period last year and the only one of the major property types to show an increase over prior year. In the first quarter, cap rates for multifamily sales averaged 5.7%, down 20 bp from the prior quarter.

Retail – The national retail vacancy rate remained effectively unchanged at 11.2% in the first quarter of 2016. Approximately half of the cities covered by CBRE-EA posted reductions in vacancy during the quarter.

The retail sector recorded $17.9 billion in sales in the first quarter 2016, down 31% from the first quarter 2015.   Average cap rates for retail properties were 6.6% in the first quarter of 2016, up 10 bps from the prior quarter.

Office –As of March 31, 2016, the national office vacancy level was 13.2% per CBRE-EA, up 10 bps from the fourth quarter 2015 due to new supply entering the market. Despite the modest uptick, overall office vacancy remains near post-recession lows. 

Office property sale volume was $31.2 billion in the first quarter 2016, down 15% from the first quarter of 2015.  The drop in sales volume was primarily due to some portfolio sales in 1Q15 and fewer CBD office sales.  Average cap rates for office transactions dropped 10 bps from the first quarter of 2015, to 6.6%.

Industrial – The national industrial vacancy level fell 20 basis points in the first quarter of 2016, to the pre-recession low of 9.2%, resulting in upward pressure on rents and an increase in development activity. The vacancy rate in the industrial sector has either remained the same or decreased every quarter for 24 straight quarters, continuing the longest period of vacancy decline that CBRE-EA has ever recorded.


Sales of industrial property totaled $12.6 billion in the first quarter, down 38% from the same period last year.  The drop in sales volume was primarily due to unusually active portfolio sale activity in first quarter 2015. Average cap rates for the industrial sector decreased 10 bps to 6.7%.

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